by Calculated Risk on 6/16/2016 02:45:00 PM

From housing economist Tom Lawler: Single-Family Home Production in 2015: Small Number, Big Homes

At the beginning of June the Census Bureau released its annual report for 2015 on the characteristics of new privately-owned residential structures, including but not limited to square footage, number of bedrooms and bathrooms, type of wall material, and sales prices. In terms of single-family homes completed last year, one of the more striking aspects of the report was the incredibly small number of modestly-sized single-family homes completed last year. Below is a summary of homes completed from 1999 to 2015 by square-footage ranges.

Of the estimated 648,000 single-family homes completed last year, just 136,000, or 21%, were homes with square footage of less than 1,800. The number of “moderately-sized” single-family homes completed in 2015 was little changed 2011, when overall single-family home completions hit at a “record” low. In sharp contrast, the number of homes with 3,000 or more square feet of floor area last year was up 76% from 2011’s level.

Single-Family Homes Completed by Square Footage
	Number of houses (in thousands) by square feet
Year	Total	Under 1,400	1,400 to 1,799	1,800 to 2,399	2,400 to 2,999	3,000 to 3,999	4,000 or more
1999	1,270	197	276	370	211	157	59
2000	1,242	178	268	363	208	158	66
2001	1,256	167	261	359	222	172	75
2002	1,325	172	283	375	240	180	76
2003	1,386	179	279	401	251	199	77
2004	1,532	186	311	433	291	219	92
2005	1,636	165	317	467	306	262	119
2006	1,654	164	312	452	326	263	137
2007	1,218	120	220	335	227	202	115
2008	819	104	146	219	138	127	84
2009	520	66	106	139	89	72	48
2010	496	66	96	135	87	75	37
2011	447	57	84	111	79	76	40
2012	483	53	83	126	93	88	40
2013	569	46	89	154	115	110	56
2014	620	48	87	162	131	127	66
2015	648	49	87	171	138	132	72

Click on graph for larger image.

Here is a chart showing the historical median square footage of single-family homes completed.

It is a little difficult to compare the distribution of single-family homes completed in recent years relative to earlier decades, because Census has changed the square-footage ranges in its reports over time. However, from 1999 to 2007 there are data for both the “old” ranges and the “new” ranges, and by looking at some historical relationships one can approximate completions for various ranges over time, which I have done in the table below.

Average Annual Single-Family Homes Completed by Square Feeet of Floor Area
	Total	<1,600	1,600- 1,999	2000- 2,399	2,400- 2,999	3,000+
1973-79	1,140	574	259	158	94	55
1980-89	978	453	207	134	108	75
1990-99	1,070	319	242	189	170	151
2000-09	1,259	269	261	224	230	274
2010	496	111	101	85	87	112
2011	447	96	86	70	79	116
2012	483	92	91	79	93	128
2013	569	88	104	97	115	166
2014	620	89	106	102	131	193
2015	648	90	109	108	138	204
(LEHC estimates based on Census data. Totals may not add up due to rounding).

There have been numerous articles over the last year or two discussing some of the possible reasons for the dearth of construction of moderately-sized (and priced) single-family homes over the past few years, and I won’t today discuss the “why’s.” However, it seems highly unlikely that single-family starts (and completions) will move back up to more “historic” levels unless there is a rebound in the construction of “smaller,” and less expensive, homes.

by Calculated Risk on 6/16/2016 11:15:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.2% annualized rate) in May. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.1% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.6% annualized rate) in May. The CPI less food and energy rose 0.2% (2.5% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for May here. Motor fuel was up 64% annualized in May.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.5%, the trimmed-mean CPI rose 2.0%, and the CPI less food and energy also rose 2.2%. Core PCE is for April and increased 1.6% year-over-year.

On a monthly basis, median CPI was at 3.2% annualized, trimmed-mean CPI was at 2.1% annualized, and core CPI was at 2.5% annualized.

Using these measures, inflation has been moving up, and most of these measures are at or above the Fed's target (Core PCE is still below).

by Calculated Risk on 6/16/2016 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 60 in June, up from 58 in May. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Rises Two Points in June

After holding steady for the past four months, builder confidence in the market for newly constructed single-family homes rose two points in June to a level of 60 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since January 2016.
...
“Rising home sales, an improving economy and the fact that the HMI gauge measuring future sales expectations is running at an eight-month high are all positive factors indicating that the housing market should continue to move forward in the second half of 2016,” said NAHB Chief Economist Robert Dietz.
...
All three HMI components posted gains in June. The component gauging current sales conditions rose one point to 64, the index charting sales expectations in the next six months increased five points to 70, and the component measuring buyer traffic climbed three points to 47.

Looking at the three-month moving averages for regional HMI scores, the South registered a two-point uptick to 61 and the West rose one point to 68. The Northeast dropped two points to 39 and the Midwest fell one point to 57.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was above the consensus forecast of 59, and a solid reading.

by Calculated Risk on 6/16/2016 08:58:00 AM

From the Philly Fed: June 2016 Manufacturing Business Outlook Survey

Firms responding to the Manufacturing Business Outlook Survey reported little growth this month. Though the indicator for general activity was positive in June, other broad indicators continued to reflect general weakness in business conditions. The indicators for both employment and work hours remained negative. Forecasts of future activity weakened from last month but continued to suggest that manufacturers expect growth over the next six months.
...
The diffusion index for current activity rose almost 7 points, to 4.7, and returned to positive territory this month after two consecutive negative readings ...

The survey’s labor market indicators suggest continued weak employment conditions. The employment index was negative for the sixth consecutive month, falling from –3.3 in May to –10.9 in June. Though nearly 72 percent of the firms reported no change in employment this month, the percentage reporting decreases (20 percent) exceeded the percentage reporting increases (9 percent).
emphasis added

This was above the consensus forecast of a reading of 2.0 for June.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The yellow line is an average of the NY Fed (Empire State) and Philly Fed surveys through June. The ISM and total Fed surveys are through May.

The average of the Empire State and Philly Fed surveys turned positive in June (yellow).  This suggests the ISM survey will probably indicate expansion this month.

by Calculated Risk on 6/16/2016 08:33:00 AM

The DOL reported:

In the week ending June 11, the advance figure for seasonally adjusted initial claims was 277,000, an increase of 13,000 from the previous week's unrevised level of 264,000. The 4-week moving average was 269,250, a decrease of 250 from the previous week's unrevised average of 269,500.

There were no special factors impacting this week's initial claims. This marks 67 consecutive weeks of initial claims below 300,000, the longest streak since 1973.

The previous week was unrevised.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 269,250.

This was higher than the consensus forecast. The low level of claims suggests relatively few layoffs.

by Calculated Risk on 6/15/2016 08:48:00 PM

Thursday:
• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 270 thousand initial claims, up from 264 thousand the previous week.

• Also at 8:30 AM, The Consumer Price Index for May from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.2% increase in core CPI.

• Also at 8:30 AM, the Philly Fed manufacturing survey for June. The consensus is for a reading of 2.0, up from -1.8.

• At 10:00 AM, The June NAHB homebuilder survey. The consensus is for a reading of  59, up from 58 in May.  Any number above 50 indicates that more builders view sales conditions as good than poor.

by Calculated Risk on 6/15/2016 05:11:00 PM

From housing economist Tom Lawler:

Below is an excerpt from a news story about mortgage credit standards. I’ve deleted the names of people quoted in the story, and I’ve left blank two references to the time periods being discussed (A and B). Read this excerpt, and before looking below, and try to guess what year “A” refers to and what period “B” refers to.

If you have not been in a lender's office lately but plan to apply for a mortgage soon, brace yourself for surprises. Gone are the breezy days when some lenders routinely stretched debt-to-income ratios or overlooked past credit problems. Mortgage specialists say getting a home loan in ___A___ can be a lot rougher than it used to be.

"Lenders are very concerned these days about the debt exposure of consumers. Someone out there with a shaky credit history may find it more difficult to get a mortgage than back in _____B_______ when the economy was rolling along," says Michael L. Wilson, deputy director of the U.S. League of Savings Institutions.

"There's definitely a tightening up. Lenders are more aware of the risk involved in making mortgage loans.”

One signal of change is the decline of the "low doc" or "no doc" mortgage, which excused those with large down payments from the need to produce most documentation on their income or debt loads. These days most mortgages are traditional, full documentation loans.

But there's more to the story than the near extinction of low or no doc loans. Even with traditional loans, lenders have become more demanding and nitpicky about paper work, mortgage specialists say. "Lenders are going into that dot the `i' and cross the `t' situation.”

"It's true that the whole lending environment has gotten more conservative. But for the average home buyer, it's not so conservative that they're being frozen out of the market. There are just more hoops to jump through.”

________________________________________________

Answers:

A - 1991

B - the mid-80’s

Mortgage lending standards, for a host of different reasons, loosened considerably later in the 1990’s, and by the end of that decade were considerably easier than the “historic” norm – though they were not as ridiculously easy as was seen during the subsequent six years.

by Calculated Risk on 6/15/2016 02:07:00 PM

Statement here. No change to policy.

As far as the "Appropriate timing of policy firming",  participants generally think there will be one or two rate hikes in 2016 (down from two to three in March).

The FOMC projections for inflation are still on the low side through 2018.

Yellen press conference on YouTube here.

On the projections, GDP was revised down for 2016 and 2017.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2016	2017	2018
Jun 2016	1.9 to 2.0	1.9 to 2.2	1.8 to 2.1
Mar 2016	2.1 to 2.3	2.0 to 2.3	1.8 to 2.1

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.7% in May, however the unemployment rate projection for Q4 2016 was not revised down.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2016	2017	2018
Jun 2016	4.6 to 4.8	4.5 to 4.7	4.4 to 4.8
Mar 2016	4.6 to 4.8	4.5 to 4.7	4.5 to 5.0

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of April, PCE inflation was up only 1.1% from April 2015.   With the recent increase in oil and gasoline prices, the range of PCE inflation projections was narrowed, and was revised up slightly for 2016.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2016	2017	2018
Jun 2016	1.3 to 1.7	1.7 to 2.0	1.9 to 2.0
Mar 2016	1.0 to 1.6	1.7 to 2.0	1.9 to 2.0

PCE core inflation was up 1.6% in April year-over-year.  Core PCE inflation was revised up for 2016.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2016	2017	2018
Jun 2016	1.6 to 1.8	1.7 to 2.0	1.9 to 2.0
Mar 2016	1.4 to 1.7	1.7 to 2.0	1.9 to 2.0

by Calculated Risk on 6/15/2016 02:00:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.
emphasis added

by Calculated Risk on 6/15/2016 09:22:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production decreased 0.4 percent in May after increasing 0.6 percent in April. Declines in the indexes for manufacturing and utilities in May were slightly offset by a small gain for mining. The output of manufacturing moved down 0.4 percent, led by a large step-down in the production of motor vehicles and parts; factory output aside from motor vehicles and parts edged down 0.1 percent. The index for utilities fell 1.0 percent, as a drop in the output of electric utilities was partly offset by a gain for natural gas utilities. After eight straight monthly declines, the production at mines moved up 0.2 percent. At 103.6 percent of its 2012 average, total industrial production in May was 1.4 percent below its year-earlier level. Capacity utilization for the industrial sector decreased 0.4 percentage point in May to 74.9 percent, a rate that is 5.1 percentage points below its long-run (1972–2015) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 8.2 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 74.9% is 5.1% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production decreased 0.4% in May to 103.6. This is 18.5% above the recession low, and 2.0% below the pre-recession peak.

This was below expectations of a 0.1% decrease.